In its latest decision, Jerome Powell-led US Federal Reserve, or the Federal Open Market Committee (FOMC) on Wednesday (January 31) has chosen to leave interest rates unchanged for the fourth consecutive time, signaling a commitment to the current rate policy.
The decision means that the federal funds rate will continue to hover within the range of 5.25% to 5.5%.
"The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%," FOMC said in a statement.
But in a statement, it signaled a shift by dropping previous wording that had said it was still considering further hikes.
Still, the central bank cautioned that it “does not expect it will be appropriate” to cut rates “until it has gained greater confidence that inflation is moving sustainably” to its 2% target. That suggests that a reduction is unlikely at its next meeting in March.
The overall changes to the statement — compared with its last meeting in December — indicate that the Fed has definitively shifted toward considering rate reductions.
In December officials signaled that they would implement three quarter-point rate cuts this year. Yet they have said little about the timing of when those cuts would begin, though senior officials earlier this month had emphasized that the Fed would proceed cautiously.
The change in the Fed’s stance comes as the economy is showing surprising durability after a series of 11 rate hikes helped drastically slow inflation, which hit a four-decade high 18 months ago.
Over the past six months, prices have risen at an annual rate of just below 2%, consistent with the Fed’s target level, according to its preferred inflation gauge. And growth remains healthy. In the final three months of last year, the economy expanded at a 3.3% annual rate, the government said last week.
The Fed is assessing inflation and the economy at a time when the intensifying presidential campaign is pivoting in no small part on voters’ perceptions of President Joe Biden’s economic stewardship.
Republicans in Congress have attacked Biden over the high inflation that gripped the nation beginning in 2021 as the economy emerged from recession. But the latest economic data — ranging from steady consumer spending to solid job growth to the slowdown in inflation — has been bolstering consumer confidence.
(With inputs from AP)
First Published: Feb 1, 2024 12:58 AM IST
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